Rocky start?

Sure, but subscriptions still have a future

Although Book by Cadillac included popular vehicles such as the XT5, the subscription service’s price may have turned off potential customers.

The Book by Cadillac vehicle subscription service had skittered along for more than a year when General Motors executives shuttered the venture in November. Few customers bit at the service's $1,800-per-month price.

Volvo's fledgling subscription service, Care by Volvo, is seemingly more popular with consumers, though company officials decline to provide enrollment figures. But Volvo's U.S. dealers have rebelled. In a petition filed in January with the California New Motor Vehicle Board, dealers claim that the service violates franchise laws intended to stop manufacturers from competing with retailers.

Suffice it to say vehicle subscription services have gotten off to a rocky start.

Yet despite the early stumbles, the programs aren't going away. Ford, Audi, Mercedes-Benz and BMW, for example, offer varying formats that combine vehicle payments, maintenance and insurance and allow customers varying numbers of vehicle swaps. Some dealers and other third parties have started their own offerings.

Cadillac plans to launch a recalibrated Book this spring, and Volvo executives have promised a Care by Volvo 2.0 this year that addresses dealer concerns.

Details on these overhauls remain vague, but when they come, industry experts say dealers shouldn't necessarily assume the worst or make knee-jerk attempts to thwart them. In a world where mobility no longer automatically equates to vehicle ownership, dealers who innovate might be front-runners if and when car-sharing and other alternatives become more widespread.

"There's a lot of concern about the future of retailing with subscriptions, mobility services and autonomous vehicles," says Simon Bradley, global practice director at Urban Science. "How do they have a network to address those needs? How do they evolve for the future?"

His answer might surprise some.

Change the law

Dealers have been stalwart defenders of franchise laws, but "dealers who innovate ... in the long term will be the winners," Bradley said. "Those laws have been in place for over a century and refined and tempered, so it'll be an evolution of those laws to permit some activities."

Subscription services might be one slice of broader services dealers can offer, not from their traditional brick-and-mortar storefronts, but from pop-up locations or experience centers in city cores that function as lead generators for suburban dealerships.

"A consumer gets to experience the brand at a location close to them in a nonconfrontational manner, in a way that innovates and they can do the paperwork online," Bradley said. "A dealership in the suburbs can deliver it, and ensure it looks exactly as the customer expects it to be, and then picks up the service."

Such a setup could potentially work for traditional vehicle sales or handling vehicle swaps under subscription services.

Perfect pricing

Care by Volvo, launched in November 2017, garnered a lot of attention from customers, who ran through a supply of vehicles intended to last the year in its first four months, according to Anders Gustafsson, CEO of Volvo Cars of North America. That caused some of the tension with dealers, who balked at seeing new XC40s they'd been itching to sell diverted to the subscription service. Last fall, Volvo agreed to cap the program's share of the vehicle to no more than 10 percent of XC40s produced.

That helped, but unease about the future remained.

"Our retailers are asking, 'Please let us be involved, because we can help,' " Gustafsson said in November. "We have a network of 292 retailers and 10,000 people in this country to take care of customers, so of course we should use them. So that's really the question — how do we put the technology we talked about, and integrate it, within our retailer structure?"

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Care by Volvo caused some tension with dealers, who balked at seeing new XC40s they were eager to sell diverted to the subscription service.

From a consumer perspective, whether subscriptions are handled by traditional dealerships, other retail locations or online is less important than the price.

On that point, Volvo may have the most compelling offering. For between $650 and $850 a month, subscribers receive a Volvo XC40 crossover, insurance, maintenance, roadside assistance and seasonal tire changes. Customers must sign a two-year agreement, which lets them change vehicles after one year.

But while Book by Cadillac faltered at $1,800 per month, Care by Volvo showed that customers are interested at the right price.

"It's just showing that when we get the price right, a good segment of the population will gravitate toward these type of services," Bradley said. "It's an experimentation to find the right price point right now."

Self-driving

The right price may give subscriptions renewed momentum. Availability of self-driving vehicles could be a catalyst that makes subscriptions more than a niche market.

"It's for high-end users until we're in an autonomous world," said Mark Colosimo, global director of data and analytics for Urban Science. "So today it makes sense for premium brands, and for a customer who might have a different need for a car to get to work in the week and want a truck on the weekend. … If we get to a point when I can switch them when an autonomous vehicle can show up at my house, then that will be widely accepted."